Contingencies are commonplace in contracts of all kinds. A contingency allows for one party or another to legally back out of a contract in the event of some specific condition occurring. They are protection against the unknown.
In real estate, there can be contingencies inserted for either buyer or seller or both. These take many different forms, and until removed in writing, either party may change their minds based on the result of the contingent event or issue.
Here are some examples of home buyer contingencies:
- Home inspections – May identify the need for major repairs or builder oversights that a buyer is not prepared to take on
- Specialty inspections – Mold, geological, roof inspections
- Code Violations – An investigation into improvements made without permits
- Lender Appraisal – Ensures the offered price is not too high
- Sale of Current Home – Allows the buyer to back out if they cannot sell their current home in a specific time frame
- Final Loan Approval – Loan is ready for signature and close
- HOA CC&Rs – Review of documents to ensure rules and regulations do not infringe on the enjoyment of the property
- Insurability – Home owner’s insurance available at a reasonable rate
Home sellers can also have contingencies included, such as one which states the sale is contingent on finding a replacement home. If the conditions of the contingency clause are not met, the contract becomes null and void, and one party can back out without legal consequences.
Contingencies are a fact of contract law, and in real estate, they ensure that buyers and sellers know their roles and obligations. Because time is of the essence, each contingency has a specific deadline. Be sure to pay close attention to these deadlines to avoid negative and costly effects on the real estate transaction.
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